The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that additions cannot be allowed on unsecured loans incurred wholly and exclusively for the purpose of business.
The Assessing Officer has disallowed the interest charged in the profit and loss account of Rs. 2,05,000/- without making any discussion for making the said disallowance which according to the Assessing Officer is personal in nature. The Commissioner of Income Tax (Appeal) [CIT(A)] simply affirmed this addition on the same ground that the loan was taken for personal purposes without taking into account the contentions and submissions of the assessee and facts available on records.
The assessee has raised an unsecured loan of Rs. 37,42,250/-. The total capital of the assessee after adjustment of net profit earned during the year and withdrawal made by the assessee worked out to Rs. 59,42,826/-. These are only two major items on the liability side which are correspondingly matched by various assets on the asset side of the balance sheet.
The Single-member bench of Rajesh Kumar (Accountant member) held that the observations of the Assessing Officer that the interest paid on the unsecured loan was personal in nature was without any substantive finding whereas, on the other hand, the assessee has vehemently argued before us by referring to the balance sheet and profit and loss account that the said loan was in fact taken for the purpose of business and interest was incurred wholly and exclusively for the purpose of business of the assessee.
There was merit in the contentions of the assessee that the loan was taken only for the purpose of business and not for any personal objectives. Accordingly, the order of CIT(A) was set aside and the Assessing Officer was directed to delete the addition.
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